2 Reasons Why The Economy Is Doing Better Than You Think It Is
I’m sure you’ve noticed that some of the economic data hasn’t been as good as expected lately. In fact, the correction in January can be attributed at least in part to weaker retail sales and employment data.
Some investors jumped to the conclusion that the slow pace of economic growth was slipping and the economy would fall back into a recession.
Here’s the thing, most of the slump in economic activity can be attributed to the extremely cold weather hitting large portions of the country.
What’s more, the idea that private economy is growing slowly is flawed.
The private economy is growing at a healthy 3.45% per year. The reason economic growth is seen as being slow is government spending and investment is shrinking at a rate of 1.69% per year.
Right now, government spending and investment accounts for 17.98% of the economy. That’s down from 21.61% in July of 2009. And it’s the lowest ever recorded since the data was first recorded in 1947.
In other words, the slowdown in government spending is a huge drag on the economy.
And that’s not the worst part…
The number of people employed by all levels of government has shrunk considerably. In December 2009, 16.29% of people held jobs from the government. Today, only 15.13% are employed by the government.
I’m only speculating here, but don’t you think it’s odd that long term unemployment and shrinkage in the labor market are rising at the time when people are getting kicked out of their government jobs?
Maybe the pension and retirement packages for government employees that are losing their jobs are a little too good. Or maybe they’re finding they’re not qualified to do much in the real world. But I digress…
The point is, the private sector is creating jobs. But the job losses created by public policy have kept the unemployment rate higher than we typically see at this point in the economic recovery.
Don’t get me wrong, I like that the size of government is shrinking. But the real world implication of shrinking government is a drag on the overall economy.
Here’s the bottom line…
The private economy is better than you think it is. It’s growing fast enough to make up for the drop in government spending and still generate 2.34% US Real GDP growth.
And don’t forget, we could be nearing a turning point for government spending. Spending at the local, state, and federal levels could stop shrinking this year. And looking back over history, investors are usually bullish on stocks when the government stops being a drag on the overall economy.
Good Investing,
Corey Williams
Category: Market Analysis, What's Going On?
